You may already be familiar with this. Apparently it’s a new idea in companies to get a more accurate picture of forecasting product success and sales. I got a glimpse of the topic from a recent article by Michael Totty (WSJ “Business Solutions” - “How to Decide? Create a Market” - June 19, 2006). From what I can tell from Mr. Totty’s article, and some poking around on the Web sites of the software providers in the market (the “Prediction Market Industry”), the concept is to create a fictitious free market (e.g., product introduction/sales in a given market or situation) that employees use to invest (play) ‘money’ in the imaginary stock. Based on the swings in the market (from investors), the outcome should reflect what could happen in the real marketplace, i.e., predict a better outcome.
The market (and software) is used as a means to more easily gather the collective knowledge of the people in an organization. So the concept holds that people with more knowledge of the issue should be better at predicting the outcome. Based on the confidence they hold in their own knowledge, they will ‘invest’ accordingly (I suppose you could have Bear and Bull markets; I haven’t quite thought that through to comment). This is one of those 1+1=3 scenarios (at least that’s my take on it).
The comparison of accuracy (to the predictions) seems to be made against the traditional forecasting models of product teams, market research, test markets, surveys, etc. However, I couldn’t help but reflect on the average person’s success in ‘playing’ the Stock Market. Add the component of quality market research, to make more informed decisions, and (I think) the ability of the average person diminishes a little more. How about the effect of global events? At the rate things are changing in this fast-paced world of ours, it’s not easy to predict what can happen next.
Since I haven’t come to closure on my prior Post about “Evidence-based Forecasting”, I can’t weigh-in on this one either. But, I can support the reference in the article that states, “Sales quotas, budgets or other factors can distort or deter the accurate sharing of information.” No question on this one. Many a sales meeting or weekly review consists of the traditional demands for more performance without consideration for why the numbers are coming up short in the first place. Rarely are these reviews a positive experience, even if you are hitting your numbers. The “Brainstorming” has a tendency to turn into a “Blamestorming” in short order.
I guess that’s why I am fond of the idea of Evidence-based Forecasting. When I got that light bulb moment regarding transparency (“…being clear about what we know and don't know.”), I am trying to envision how Predictive Markets would work better in sales forecasts. All too often a sales forecast is the result of Top Down or Bottom Up Forecasting. So, it becomes a matter of, “Here are your numbers, make them happen!” I can only imagine what the outcome might be if you asked your sales team to develop numbers as a “free market” (Well now, maybe it’s not too unlike an IPO). It’s a little too speculative for my blood pressure when it comes to sales forecasts.
What do you think? Here are some links to some of the software companies in this market:
Inkling – “Inkling is an online service to create and manage your own prediction markets.”
NewsFutures – “Founded in 2000, NewsFutures has pioneered the business of prediction markets.”
Consensus Point – “A pioneer of the prediction market industry, Consensus Point, Inc. began implementing prediction markets in 1994.”
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